OBSERVATIONS FROM THE FINTECH SNARK TANK
The fintech world loves to glamorize disruption—move fast, break things, reinvent the system. Sometimes, what gets broken isn’t the system—it’s trust. That’s what happened with Charlie Javice, the founder of financial aid startup Frank, the new poster child for fintech fraud after her conviction for defrauding JPMorgan Chase out of $175 million.
Javice, who sold her fintech startup Frank to JPMorgan Chase in 2021, claimed to have more than four million users. That number was more inflated than the crypto market following the Trump election. The real number? About 300,000 users.
To cover her tracks, Javice allegedly hired a data scientist to fabricate user data, presenting it as evidence during the acquisition process.
Javice’s conviction is sending shockwaves through fintech and banking—and the aftershocks are just beginning. The implications go beyond one bad actor gaming the system. This case exposes vulnerabilities in how fintech startups sell themselves, how banks evaluate acquisitions, and how investors assess risk in the sector.
How Did JPMorgan Chase Get Duped?
It wasn’t just a case of one person being really good at deception—it was a perfect storm of misaligned incentives, inadequate due diligence, and a rush to stay competitive in the fintech arms race.
Chase didn’t just buy a product—it bought a narrative. The pitch was irresistible: a growing user base of 4.25 million Gen Zers that the bank hoped to turn into long-term customers. Atypical for a deal of this magnitude, the bank’s due diligence process:
1) Failed to verify user data. Chase relied heavily on self-reported data from Frank without conducting adequate third-party audits to validate the platform’s user base. According to the lawsuit JPMorgan filed after the acquisition, the bank discovered millions of fake accounts only after integrating Frank’s database into their system.
2) Rushed technical due diligence. The bank’s due diligence process focused more on the business model and growth potential than on Frank’s underlying technology. Verifying the authenticity of user data should have been a top priority, but JPMorgan’s technical audit missed the mark.
3) Over-relied on internal expertise. Large banks often have internal M&A teams that perform due diligence, but in this case, JPMorgan underestimated the complexity of evaluating a fast-growing fintech. While the team may have been adept at analyzing traditional banking acquisitions, fintech acquisitions require different expertise—particularly in verifying tech claims, data integrity, and regulatory compliance.
JPMorgan’s due diligence failed to go beyond the surface and conduct the kind of forensic audit that would have exposed the fraudulent user data before the deal closed. Chase’s motivations, however, are understandable:
- Chase was desperate to attract Gen Zers. With fintechs and neobanks like Chime, Current, and Cash App winning over younger customers, JPMorgan saw Frank as a shortcut to secure millions of Gen Z accounts.
- There was strong competitive pressure. Other megabanks like Bank of America and Wells Fargo were also eyeing fintech acquisitions to stay relevant. The pressure to move quickly in a competitive market often leads to cutting corners on due diligence.
- The perceived risk was low. Compared to more complex fintechs offering lending or payments solutions, a platform helping students complete FAFSA forms probably felt like a low-risk bet—which may have lulled Chase into a false sense of security.
The Impact Of The Javice Case On Fintech’s Reputation
The biggest casualty of the Charlie Javice case isn’t JPMorgan’s wallet—it’s trust in fintech. For years, fintechs have sold themselves as the transparent, customer-friendly alternative to traditional banks. But high-profile scandals like this will make consumers—and banks—think twice.
There’s a misguided notion that permeates the fintech community that fintechs are ethical, either because they claim to be, or because they do something (like carbon offsetting) that they equate with ethical behavior.
There are claims that there is a fintech “ethos” that distinguishes fintechs from banks (and somehow makes fintechs morally superior). These perspectives aren’t always explicit, but references pop up here and there:
- 9to5 Mac reported, “Americans paid $113 billion in credit card interest to banks last year, nearly 50% more than five years ago. So adopting the new fintech ethos of zero fees and transparent pricing makes for thinner profit margins.”
- A study from Ethical Consumer claimed that “Monzo is one of the best ethical current accounts” and found “the vast majority of companies in the personal finance sector score badly on ethics.
- An article on Medium.com asserted, “Fintech is better than traditional financial companies because challenger banks focus on securing the data of their clients using technology. Traditional banks are slower than challenger banks especially the issue of adopting cybersecurity measures.”
Could Fintechs Be Less Ethical Than Banks?
Fintechs often claim to be more tech-driven than legacy banks (as did the Medium article). Therefore, could fintech startups be less ethical than legacy banks?
A study from Brett Scott, a Senior Fellow with the Finance Innovation Lab, raises some interesting ethical issues about the advancing use of technology in banking. His study, titled Hard Coding Ethics into Fintech, asked:
- Does automation reduce the ethical awareness and responsibility of financial professionals? According to Scott, “It is plausible that as decision-making processes are increasingly automated, [providers] may feel increasingly less responsible for the decisions, or perhaps will not even be aware of the decisions.”
- Does automation reduce customer awareness of ethics? Scott conjectures, “Fintech companies put a positive spin on the speed, ease and frictionless nature of digital finance, but does frictionless finance increasingly detach the customer from deeper awareness of what lies behind?”
- Does automation lead to financial surveillance? Scott warns, “Digitisation increases personal data trails. Financial data reveals very deep insights into how people act in the world, and–when combined with other data sets–potentially allows institutions to know you better than you know yourself.”
Since the general consensus is that fintechs do a better job of capturing consumer data–and with “automation” more broadly–Scott could have replaced “institutions” in that sentence with “fintechs.” Scott closed his study with the following comment:
“I have speculated on some potentially negative ethical implications of fintech. Unless we actively embed awareness of [these questions] into our innovations, we may sleepwalk into an increasingly ethically-disabled financial system.”
Without a more concerted attempt to define and demonstrate ethical behavior, the romanticization of fintech’s alleged moral superiority is going to backfire.
As adoption and usage of fintech continues to increase, there will be a growing number of examples and instances where fintechs will fail the ethics “know it when I see it” test.
Even if the percentage of instance is lower among fintechs than of legacy financial institutions, it won’t change perceptions. It’s not a “three strikes until we consider you unethical” kind of a thing.
Fintechs can do themselves a favor by dropping the “ethics” rhetoric and get back to solving consumers’ and customers’ problems.
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